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Answer to Question #57666 in Other Economics for CEVCleveland

Question #57666
Theoretically, lower fuel/gasoline costs help the economy by lowering prices on transported goods allowing consumers to purchase more goods, etc. Also, theoretically, fuel prices dropping TOO low hurt the economy as lower prices are caused by too high of a supply and layoffs occur as drilling/extraction is cut back.

However, is there a point where the layoffs hit a maximum and the economy continues to benefit if fuel continues to drop in price? If oil/natural gas companies stop drilling at say $35.00/barrel or $2.20 Natural Gas spot price (hypothetical benchmarks) and the price continues to fall, wont all the benefits of lower fuel costs continue to help the economy while layoffs remain fixed at a peak? You can't layoff an oilfield worker if he's alrrady laid off, right?
Expert's answer
If fuel prices are dropping too low, it will hurt the economy only if the producing of fuel is very important for national production and the cost of production is higher than the current price.
If oil/natural gas companies stop drilling at $35.00/barrel or $2.20 natural gas spot price and the price continues to fall, then all the benefits of lower fuel costs will continue to help the economy, because the layoffs remain fixed and the cost for many productions will fall with the decrease in fuel prices. The economy will be better off only if production of fuel is not the main of one of the main industry in national GDP.

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